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This is not to say that the drugmakers are purely victims. They really are earning huge profits from the drugs that the Biden administration has singled out. Lowering the prices wouldn’t kill them.
Also, I don’t predict that the price-setting system will be as skewed against Big Pharma as these provisions have the potential to make it. I trust Seshamani — who is a medical doctor and has a doctorate in economics — when she says that the government will take into account the value that the drugs provide in arriving at a price.
The real issue here is not “pharma good, government bad” or the other way around, but that there is no clear standard for what a fair price should be for a drug that is available from only one source, that costs a lot to research and develop but very little to manufacture, and that provides important health benefits.
The 10 drugs — whose names you will probably know, even if you don’t have a prescription for them, from the warm-glow TV ads of patients canoeing, barbecuing, dancing the cha-cha and hugging their adorable grandchildren — are Eliquis, Jardiance, Xarelto, Januvia, Farxiga, Entresto, Enbrel, Imbruvica, Stelara, and Fiasp and its related medicines. They are among the drugs that Medicare Part D spends the most on, and they treat life-threatening diseases such as diabetes, heart failure and cancer.
In a textbook free market, “fair” is whatever the market will bear. Competition drives the price down to the marginal cost. Producers earn enough money to make staying in business worth their while, but no more. But these drugs don’t fit that model. Patents protect them from competition, allowing their producers to price them high. On the other hand, because of their high upfront development costs, pricing the drugs very low, at marginal cost, would be unrealistic. If that’s all the manufacturers earned from them, they would have no incentive to stay in business and develop new drugs.
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